The Relaxing of Capital Controls and Rise of External Debt

Abstract

This paper examines the impact of capital account liberalization on the external debt. The study is made for a panel of eight countries of South Mediterranean Countries (SMCs) over the period 1971 to 2015. We use different models to explain the growth of external debt. We find that capital account liberalization is negatively correlated with external debt. We also find that the macroeconomic instability has an important role in the rise of external debt.